ABSTRACT
This chapter provides an overview of the sub-national fiscal crises included in the sample. It discusses crisis resolution mechanisms, followed by a review of conditionality and also discusses crisis prevention mechanisms whose introduction was instigated by fiscal crises. The chapter compares the recent crisis response in the euro area with crisis resolution schemes in the sample. It has shown that when facing a financing crisis, subnational governments are rarely allowed to default on their private creditors. A fiscal crisis can be characterized as a situation whereby the state/local government loses market access or faces rising financing costs that undermine its capacity to deliver essential services. Subnational fiscal crises have been triggered by exogenous and endogenous factors. In some cases, the trigger was an external shock that resulted in interest rates. Federal governments can introduce guarantees of subnational debt at a time of crisis. Direct federal loans have been used more frequently to relieve subnational fiscal stress.
